Governments Cracking Down on Tax Evasion

Is large scale tax-evasion coming to an end?

It most certainly has caught the attention of the German Finance Minister Wolfgang Schäuble that Luxemburg is intensifying its international cooperation with tax authorities in other countries.

Governments Cracking Down on Tax Evasion

Frankfurter Allgemeine Zeitung:

Luxemburg’s Finance Minister Luc Friedens tells the Frankfurter Allgemeine Zeitung: ”We want a stronger cooperation with the foreign tax authorities.”

In an interview with Deutschland Radio Wolfgang Schäuble said to the report:

…..That is nothing new, but has for quite some time, and then it is really – I’m much pleased by this report, because it will increase the pressure, as we know there are unbelievably complicated constructions. Whether they are all illegal is another question, but a lot of it is at least a grey zone. Your correspondent has just shown the complications of the matter and the limitations in action.

We have for long worked, internationally as well, to get a grib on the problem – this still appears to me as a decisive Handle – that you report over the tax basis, that is what economic activity generates what amount where – to make a transmission of these incomes to a tax heaven – into different tax jurisdictions – more difficult. That is one of the salient points we have been working on. I have finally managed to mobilise the G20. The OECD has been on board for a long time…….

Apparently it started as a project between the British Newspaper “The Guardian” and a group calling themselves International Consortium of Investigative Journalists.

Gerard Ryle, ICIJ’s director, obtained the data trove as a result of his three-year investigation of Australia’s Firepower scandal, a case involving offshore havens and corporate fraud. 

The offshore information totalled more than 260 gigabytes of useful data. ICIJ’s analysis of the hard drive showed that it held about 2.5 million files, including more than 2 million e-mails that help chart the offshore industry over a long period of explosive growth.  It is one of the biggest collections of leaked data ever gathered and analyzed by a team of investigative journalists. 

The ICIJ is rather coy about the source of this information, which is natural for a journalist, and makes a great deal out of the complicated analysis of the vast amounts of data. But it does point to some sort of government agency somewhere that for a different purpose has collected the information – and slipped it to a journalist in a non-traceable way.

To attribute the ICIJ with more than breaking the story – achievement in itself – is perhaps underestimating the work behind the analysis. It is a well-known ploy by civil servants to slip journalists photocopies of embarrassing documents and make them run with it. It is done f.i. in cases where superiors aren’t quite to be trusted – motives are many.

It seems to be a part of a larger campaign. Wolfgang Schäuble:

… We are working on it the EU. I have always said in the EU: We are not going to wait till the last island somewhere in the Caribbean has the rules implemented. On the contrary we take the lead in the EU. But look how difficult it is – also in the European Union – to get ahead with the exchange of information. We still have two countries that demand special rules by the taxation of interest incomes. I suppose that will change also through such developments and lots of others…..

The snide remark to two countries: One is obviously to Great Britain; but the other could be Sweden?

As to Britain “The Guardian” has:

But Erik Solheim, chair of the OECD’s development assistance committee – the club of rich aid donor countries – told the Guardian that the world cannot wait for wholesale changes and needs to act now, particularly to ensure that developing countries receive their fair share of taxes from multinational companies.

Solheim spoke amid the latest revelations on offshore tax havens, including the British Virgin Islands.

“Obviously we have to aim for heaven, but we cannot wait, there are enormous opportunities now, by for example setting the right tax rate,” said Solheim, referring to his native Norway.

“We set a 78% flat tax rate for oil companies to ensure there was enough money for future generations. A number of companies threatened to leave, but none have because at the end of the day, they are interested in sound long-term profits and not super profits.”

The point with Luxemburg is more in the direction of a small country with a huge banking sector. Cyprus had bank balances in two (or three) banks amounting to 7-8 times the GDP of the country. That is positively dangerous, if just one of those banks gets into trouble; the country’s economy is not large enough by far to rescue the bank. The country simply can’t issue enough bonds to guarantee depositors.

Wolfgang Schäuble:

… we don’t like that business plan at all. We hope it isn’t successful. But when it goes insolvent as it did on Cyprus it is not to be expected that we will go on financing it. That is why Cyprus has given us a handle in the hand which we don’t have in other cases – don’t; as in other tax heavens. But when banks through the membership of the Euro-zone has gone insolvent, they cannot expect in any case, that we will make these banks solvent again with means from other countries.That is why we held firm in Cyprus and prevailed in the end.

Switzerland is feeling the lash, as the former CEO of Bundesbank Axel Weber is now CEO of UBS in Switzerland.

Luc Frieden, Finance Minister of Luxemburg made the following comment:

Q: Mr. Frieden, the newest revelations concerning global tax-evasion brings Your country under pressure too. Other EU-countries demand the tax-oasis Luxemburg is to be laid dry.

A: Luxemburg is no tax-oasis. We subject ourselves to all EU and OECD regulations pertaining to moneylaundering and tax-evasion.

Q: But You still denies the German tax-authorities automatic information report, when there is no suspicion over capital incomes from German savers. Will You change that?

A: The international trend is towards such automatic exchange of information. That is something we don’t refuse today as opposed to earlier. We want a stronger cooperation with foreign tax- authorities.